Helping developing countries put their hands in their own pockets

At the beginning of this year, Secretary of State for International Development Penny Mordaunt said: “I will not invest when others should be putting their hands in their pockets…I want the governments of developing countries to take responsibility for investing in healthcare or education.”

Maybe an NGO like Save the Children should be dismayed at this. After all, we robustly assert that rich countries have a responsibility to help poor countries and that essential services like health and education for the poorest and most marginalised must be the priority for the UK’s support.

But we are working for long-term, large-scale, sustainable development. And if we want that, then it is obvious that aid is not going to be the solution to financing quality public services for a whole population. For a start, aid is a small part of the financing of public services in low and middle-income countries. Aid is not growing significantly in this era, whereas the UK has achieved 0.7% of GNI as overseas aid, many other donor governments are falling far short.

In many low and middle-income countries, health and education are mostly funded by payments by individuals and families – the least fair way of funding public services and a way which increases inequalities rather than reducing them. The fairest way is for governments to collect resources from the whole population and to invest in public services. Contributions should be mandatory and based on ability to pay. That generally means tax. Access to services should be universal, ideally without any cash payments and even prioritise the poor.

Yet many governments are simply not raising enough funds. In European High Income Countries, the percentage of GDP raised as tax ranged from 33.5% (UK) to 45% (Denmark). Upper middle-income countries may be raising over 20% of GDP as government revenue, but lower middle-income and low-income countries manage less than 15%.

On a visit to Ethiopia this week, Penny Mordaunt announced the UK’s biggest ever tax partnership programme to help Ethiopia generate more tax. We strongly welcome this announcement. Although the UK has long been supporting improved governance and public financing increasing, this is exactly the way that aid should be helping build sustainable change. We’ve made this case several times, often about the fall in domestic resources for health.

For a long time, UKAid has been under pressure to show direct and short-term results from its funding, as a way to answer those who criticise us giving aid. This has led to an over-reliance on projects that can show successes within three years but without necessarily achieving any long-term change.

Penny Mordaunt is implying that the UK will start to make a government increasing domestic resources a condition of it receiving aid, saying “If it chooses not to, that will inform our decisions”. Mention aid conditionality to development experts if you want to hear a gasp of horror. But aid always has strings attached, such as respect for human rights and anti-corruption. Maybe it is time to have a new condition – that governments must show they are doing everything they can in return for long-term and flexible aid commitments. Perhaps, this might be the way to end countries’ overreliance on fragmented and inadequate aid, whilst also making sure that rich countries continue to pay their part?

 

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  • Hopefully Penny Mordant’s tax partnership in Ethiopia will also address corporate tax dodgers, especially since the tax revenue as a % of GDP was just 9.2% in 2011. The UK needs to support plans which will ensure full pockets so that the government can actually pull out some money from their pockets when they do decide to invest more in health.